cecl implementation: what you need to know · cecl implementation: what you need to know. p create...

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP

August 6, 2019

CECL Implementation: What You Need to Know

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP

Create Opportunities

Disclaimers

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein.

3

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Housekeeping

• If you are experiencing technical difficulties, please dial: 800-422-3623.

• Q&A session will be held at the end of the presentation.

– Your questions can be submitted via the Questions Function at any time during the presentation.

• The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days.

• For future webinar invitations, subscribe at CLAconnect.com/subscribe.

• Please complete our online survey.

4

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


About CLA

• A professional services firm with three distinct business lines– Wealth Advisory

– Outsourcing

– Audit, Tax, and Consulting

• More than 6,100 employees

• Offices coast to coast

• Serving 1,500+ financial institutions

Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC.

5

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Speaker Introduction

• David Heneke and Josh Juergensen are principals within CLA’s financial institutions practice, working with financial institutions across the country. They both focus 100 percent of their time on certified audits, internal audits, and other consulting services for financial institutions.

6

©2

01

8 C

lifto

nLa

rso

nA

llen

LLP





Recent Developments

7

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Proposed Extension

• July 17 FASB Meeting

– Proposed dividing implementation into two buckets◊ Publically Traded, excluding small reporting companies

◊ Everyone else (implementation would be 2023)

8

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


ASU 2019-04

• Accrued Interest

– Accounting policy election, several options

• Recoveries

– Should be included when estimating the allowance for credit loss

9

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


ASU 2019-04

• Selling Costs on Probable Foreclosures

– Specifically requires an entity consider the estimated costs to sell if it intends to sell

• Contractual Extensions and Renewals

– An entity should consider extension options that are included in the original or modified contract and are not unconditionally cancellable by the entity

10

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


ASU 2019-05

• Provides an option to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible instruments

11

©2

01

8 C

lifto

nLa

rso

nA

llen

LLP





Current Allowance Levels and CECL Expectations

12

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Current Allowance Levels (As of March 31, 2019)

13

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Industry Wide Net Charge-Off Data (12/31/18)

14

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Large Institution Charge-Off Curve

15

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Large Institution Trend Analysis

16

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Community Institution Charge-Off Curve

17

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Community Institution Trend Analysis

18

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


CECL Assumptions

• Allowance will go up

• Reserve for life instead of incurred

• Reasonable and supportable forecast period

19

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


CECL Versus Incurred Comparison

20

©2

01

8 C

lifto

nLa

rso

nA

llen

LLP





Qualitative Factors/Industry Data Analysis

21

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Qualitative Factors/Forecasting

• Historical loss rates will continue to be adjusted for qualitative factors and forecasting

• Select a reasonable and supportable forecast period and adjust historical information

• Federal Reserve data can assist with this analysis

https://cdr.ffiec.gov/public/

https://research.stlouisfed.org/fred-addin/

https://fred.stlouisfed.org/graph/?g=4VT

https://www.ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data

22

https://cdr.ffiec.gov/public/

https://research.stlouisfed.org/fred-addin/

https://fred.stlouisfed.org/graph/?g=4VT

https://www.ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP



• Mathematically support qualitative factor adjustments.

• Regression analysis.

• Are there any correlations between your data and an economic data point?

• Level of sophistication will depend on if your data can be correlated.

23

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP



• Use of industry data

• Correlate economic items to industry data

24

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Correlations/Forecasting

25

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

6/1

/20

06

11

/1/2

00

6

4/1

/20

07

9/1

/20

07

2/1

/20

08

7/1

/20

08

12

/1/2

00

8

5/1

/20

09

10

/1/2

00

9

3/1

/20

10

8/1

/20

10

1/1

/20

11

6/1

/20

11

11

/1/2

01

1

4/1

/20

12

9/1

/20

12

2/1

/20

13

7/1

/20

13

12

/1/2

01

3

5/1

/20

14

10

/1/2

01

4

3/1

/20

15

8/1

/20

15

1/1

/20

16

6/1

/20

16

11

/1/2

01

6

4/1

/20

17

9/1

/20

17

2/1

/20

18

Unemployment Rate vs Chargeoff Rate

Annualized Chargeoff Rate Unemployment Rate

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Model Selection

29

• Complexity versus accuracy of utilizing multiple methodologies

• Importance of risk rating accuracy, timely update and tracking

• Changes to policies, procedures, and process controls

• Consistency of assumptions across models

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Data Elements

• Note Number

• Purpose Code

• Original Amount

• Current Principal Balance

• Origination Date

• Renewal/Extension Date

• Maturity Date

• Risk Rating

• Charge-off and Recovery Data (with date and note)

30

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Data Elements

• Interest Rate

• Payment Amount

• Payment Frequency

• Prepayment Expectations

• Narrative to Support Inputs

31

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Data Collection

• Additional data collection may be necessary depending on how granular you want to get

• Other elements may include loan to value, debt service coverage, credit scores, etc.

• You do not want to get too granular, as you may end up with very small pools that will not be statistically relevant

• Verify you can obtain the elements mentioned above at various points in time

32

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP


Closing Thoughts

• Statistically supporting qualitative factors will be a challenge for community institutions

• Tools are available to assist with forecasts

• Qualitative and forecasting adjustments are going to continue to be a significant component of the allowance calculation

33

©2

01

9 C

lifto

nLa

rso

nA

llen

LLP

CLAconnect.com

Thank you!

David Heneke, [email protected]

Josh Juergensen, [email protected]

cecl implementation: what you need to know · cecl implementation: what you need to know. p create...

Documents